INCOME TAXES

The jurisdictional components of income before taxes consist of the following:



	December 31,
(in thousands)	2014		2013		2012
Income before income taxes:
Domestic	$	43,345	$	35,146	$	29,390
Foreign	17,260		16,242		14,056
	$	60,605	$	51,388	$	43,446

The components of income tax expense (benefit) consist of the following:



	December 31,
(in thousands)	2014			2013			2012
Current:
Domestic	$	13,495		$	10,605		$	9,273
Foreign	3,382			3,200			4,919
State	2,685			2,366			756
	19,562			16,171			14,948
Deferred:
Domestic	(600		)	(1,074		)	(192		)
Foreign	540			249			(363		)
State	(48		)	(52		)	150
	(108		)	(877		)	(405		)
Total income taxes	$	19,454		$	15,294		$	14,543

The difference between income tax expense (benefit) for financial statement purposes and the amount of income tax expense computed by applying the domestic statutory income tax rate of 35% to income before income taxes consist of the following:



	December 31,
(in thousands)	2014			2013			2012
Domestic statutory rate at 35%	$	21,212		$	17,985		$	15,206
Increase (reduction) from:
Jurisdictional rate differences	(2,119		)	(1,959		)	(1,477		)
Goodwill impairment	—			—			157
Valuation allowance	353			(114		)	825
Stock based compensation	199			136			214
U.S. state taxes	1,649			1,496			589
Domestic production deduction	(1,321		)	(1,162		)	(948		)
R&E credit	(614		)	(856		)	(130		)
Other, net	95			(232		)	107
Provision for income taxes	$	19,454		$	15,294		$	14,543
Effective tax rate	32		%	30		%	33		%

Deferred income taxes arise from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The components of the Company’s deferred income tax assets and liabilities consist of the following:



	December 31,
(in thousands)	2014			2013
Deferred income tax assets:
Inventory basis difference	$	1,051		$	1,576
Accounts receivable reserve	394			201
Stock based compensation	1,284			904
Pension liability	3,018			1,604
Employee benefit accrual	1,448			601
Product liability and warranty reserves	1,480			1,417
Expenses not currently deductible for tax purposes	410			1,064
Foreign net operating loss	1,379			2,954
State net operating loss	10			76
Other	—			34

Total deferred income tax assets	$	10,474		$	10,431
Less: Valuation allowance	(1,064		)	(711		)

Net deferred income tax assets	$	9,410		$	9,720

Deferred income tax liabilities:
Depreciation	(2,786		)	(3,068		)
Intangible assets	(2,144		)	(1,277		)
Deferred revenue	38			(66		)
Expenses not currently deductible for tax purposes	(356		)	(461		)

Total deferred income tax liabilities	$	(5,248	)	$	(4,872	)

Net deferred income tax assets	$	4,162		$	4,848

As of December 31, 2014, the Company had foreign deferred tax assets consisting of foreign net operating losses and other tax benefits available to reduce future taxable income in a foreign jurisdiction. These foreign jurisdictions' net operating loss (NOL) carryforwards are in the approximate amount of $4.6 million with an unlimited carryforward period. The Company also has U.S. state net operating loss carryforwards in the amount of $27,000 which will expire between 2015 to 2028.

The company recorded a valuation allowance as of December 31, 2014 and 2013 due to uncertainties related to the ability to utilize some of the deferred income tax assets, primarily consisting of certain U.S. state NOLs and income tax credits, and international NOLs, before they expire. The valuation allowance is based on estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income tax assets will be recoverable. The realization of net deferred income tax assets recorded as of December 31, 2014 is primarily dependent upon the ability to generate future taxable income in certain U.S. states and international jurisdictions.

Deferred income taxes have not been provided on the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and the respective tax bases of the Company’s foreign subsidiaries, based on the determination that such differences are essentially permanent in duration in that the earnings of the subsidiaries are expected to be indefinitely reinvested in foreign operations. As of December 31, 2014, the cumulative undistributed earnings of these subsidiaries approximated $151,868,000. If these earnings were not considered indefinitely reinvested, deferred income taxes would have been recorded after the consideration of foreign tax credits. At this time, it is not practicable to estimate the amount of additional income taxes that might be payable on those earnings, if distributed.

The Company adopted the provisions of FASB ASC Section 740-10-25 (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”) on January 1, 2007. Unrecognized tax benefits in the amount of

$388,000 and $146,000 for 2014 and 2013, respectively, are included in other noncurrent liabilities on the balance sheet. The unrecognized tax benefits, if recognized, would favorably impact our effective tax rate in a future period. We do not expect our unrecognized tax benefits disclosed above to change significantly over the next 12 months.



	December 31,
	2014			2013
Balance as of beginning of year	$	146,000		$	257,000
Additions for tax positions related to the current year	63,000			56,000
Additions for tax positions related to prior years	262,000			27,000
Reduction due to lapse of statute of limitations	(83,000		)	(194,000		)
Balance as of end of year	$	388,000		$	146,000

The Company's policy is to include interest and penalty expense related to income taxes as interest and other expense, respectively. As of December 31, 2014, no interest or penalties has been accrued. The Company’s open tax years for its federal and state income tax returns are for the tax years ended 2010 through 2014. The Company's open tax years for its foreign income tax returns are for the tax years ended 2010 through 2014.